Inflation expectations

In one line: Inflation expectations are what households and firms believe future inflation will be, and they shape today's wages and prices.

Why they matter

If people expect prices to keep rising, workers ask for higher wages and businesses raise prices in advance. A temporary food shock can then become general inflation. This spread is called a second-round effect.

The link to October 2026

The surge started with onion, garlic and ginger, but restaurant and accommodation services rose 10.06% and personal care 10.14%. Economists read this as early evidence that food costs are passing into services. A rate hike cannot grow more onions, but it can signal that the RBI will not let higher prices become permanent.

The trade-off

Acting on expectations means accepting some loss of growth now to avoid a bigger inflation problem later.

Where to go next

• Monetary Policy Committee
• Consumer Price Index